Success of demand-side & supply-side polices in the real world 🌎 Flashcards
What was economic growth like before, during & after the 2008 recession?
Before 2008: between 2-3% per annum
During crisis: negative 👎 growth
After 2008: Gradual ⬆️
What was inflation like before, during & after the 2008 recession?
Before 2008: hardly reaching 3%
During crisis: ⬆️ 3% (cost push inflation- 💷 ⬇️ by 25% against 💶 … depreciation-> ⬆️ expensive imports e.g. raw materials-> ⬆️ firm production costs-> costs passed onto consumers via ⬆️er prices)
After 2008: ⬇️ 2% (since 2014) & ⬇️ 1% (in 2015)- 💷 recovered 1/4 of its depreciation … cost push inflation ⬇️
Why is a target of 2% inflation important and what are the consequences if it increases of decreases from this target?
Inflation: 2% 👍 because incomes move with inflation and allows for steady economic growth
Low inflation typically means slow economic growth and ALSO dangers of deflation
BUT if inflation too ⬆️ then-> international competition eroded (exports ⬆️ expensive), FDI discouraged (value of investment ⬇️)
What are the consequences of unemployment?
Unemployment: detrimental-> lost income-> potential ⬇️ in employability due to lost skills etc
What was unemployment like before, during & after the 2008 recession?
Before 2008: 1.6 million
During crisis: 2.5 million
After 2008: ⬇️ 2 million
When is having a deficit on the current account of the balance of the payments important and when is it less important?
Balance of Payments/currency strength: deficit ✖️ concern governments IF trust in capital markets & value of 💴- 🇬🇧 has international 🌎 investments with ⬆️ earning potential- help restore balance if left alone (laissez faire)
What was balance of payments/currency strength like before, during & after the 2008 recession?
Before 2008: £46 billion deficit- 🚘 & total
During crisis: £ 💷 ⬇️ 25% against € 💶- initially (short-run) deficit worsened due to import & exports price elasticity of demand 0 (j-curve effect) … perfectly inelastic (quantity demanded remains due to fixed import contracts and stocks etc no matter price BUT because imports ⬆️ expensive then value of deficit gets larger as imports have greater value than exports … current account deteriorates in short run)- BUT later (long-run) deficit lessened (imports ⬆️ expensive-> ⬇️ demand & exports cheaper-> ⬆️ demand)
After 2008: 💷 recovered ¼ of ⬇️ … ⬇️ easy to export & 🚘 now ⬆️ expensive BUT less cost push inflation (weak 💷 = ⬆️ expensive imports-> firms ⬆️ prices due to ⬆️ production costs (raw materials ⬆️ expensive)
What are examples of attempts made to encourage a sustainable environment in the real life world?
1) Kyoto Protocol- expired in 2012- ✖️ significant ⬇️ in carbon emissions (CO2)- ✖️🇺🇸 backing (important)
2) EU Emissions Trading System (ETS)- set up 2005- included aviation✈️ industry in 2012
Describe attempts made to decrease income inequality and the effectiveness of them
Social expenditure has little affect to ⬇️ poverty- workers in cycle of unemployment (✖️ have skills to find work, ⬆️ 🏠 cost, care for dependants etc)- may even create dependency
